Saturday’s Globe & Mail’s business section has an in-depth article about [praized subtype=”small” pid=”7ac08d444f37191c8a97699e6530751c” type=”badge” dynamic=”true”] (YPG). The article clearly has a negative tone talking about revenue erosion, the rise of social media and the company’s debt-load. They quote Marc Tellier, YPG’s CEO, extensively but they don’t seem to believe him.

Highlights:

Talking about the positive reputation YPG has in the market, the article says “But that halo has now gone the way of carbon paper”

Talking about revenues, the Globe adds: “Yellow Pages’ 2.3-per-cent drop in the first half of this year seems minor by comparison – except for the fact that the company is carrying $2.5-billion in long-term debt, much of it added during the glory years to make acquisitions. While some paper boats are sinking, Mr. Tellier is trying to keep a heavy vessel afloat, managing a century-old company whose main product is a clunky paper directory…”

Talking about the cut in dividend distribution, “There were a lot of people who felt management said one thing and did something else. Investors hate that.”

About online competition, “The Googles of the world, the Yahoos of the world, local search engines, bigger brands branching out, I don’t believe Yellow Pages can sustain itself”

About online revenues, “The online side of Yellow Pages still accounts for less than one-fifth of the business. It could reach 20 per cent by year’s end if management’s guidance is correct. But the question isn’t whether Yellow Pages’ Internet presence is growing; it’s whether it’s growing fast enough to make real money. On the Web, no one holds a monopoly. As is the case with newspapers and magazines, it’s far from certain whether the Web will be enough to compensate for Yellow Pages’ print losses.”

About social media, “And Yellow Pages faces a threat from another dot-com behemoth: Facebook. Social media is chipping away at the directory’s credibility, click by click. (…) That wasn’t bad for Yellow Pages as long as people were just talking to their neighbours over the backyard fence. But now, social media has made it easy for consumers to swap stories and recommendations on public forums. Word of mouth spreads faster than ever before.”

Tellier’s answer on the social media threat, “Marc Tellier argues that’s not enough. “You can’t run a business on word-of-mouth alone,” he says. “In some categories [the shift to online] is going to happen in two or three years. In others it’s going to take 30 years … I would have lost all my hair at the ripe old age of 41 if I believed a lot of what we’d been reading in terms of the pundits – you know, print is dead and so forth. It’s not true.” Many observers disagree. Much as he would like to, Mr. Tellier can’t separate himself from declines in the rest of the print industry.” YPG’s CEO adds later when talking about the last time he used the print directory: “Could I have solved that problem on Facebook? I don’t think so,” he says. “This is a growth industry … The business is remarkably healthy.”

The article concludes by saying: “Now he’ll just have to convince investors of that fact, make them believe his book isn’t a dinosaur on the brink of extinction. That could be the toughest sale of all.”

What it means: Ouch. I think it’s the first time an important Canadian media writes a very negative article on Yellow Pages Group. To be fair to YPG, I believe the Globe’s business section has always been bearish on the company. So, I’m not really surprised the first article of this kind comes from that news source. I also don’t like the comparison to newspapers. We’re definitely not talking about the same business dynamics. I do have to give kudos to the Globe & Mail for mentioning social media as a credible threat to directory publishers. I obviously don’t agree with Tellier when he says he could not have found the business he was looking for using his Facebook friends. Thousands of business references are being shared on social media sites every day and those contribute to market fragmentation in an already very fragmented world. I do agree with Tellier when he says word-of-mouth is not a strategy in itself but directory publishers need to be able to corral all sorts of leads for small merchants including word-of-mouth (social) ones.